Valued at $29.5 billion by market cap, WSP Global (TSX:WSP) is among the largest companies in Canada. Founded in 1885, it is also one of the oldest companies in the country. WSP Global operates as a professional services consulting firm that plans, designs, and manages projects for private and public companies across sectors such as railways, transportation, aviation, infrastructure, and much more.
WSP Global went public in January 2014 and has since returned almost 700% to shareholders. After accounting for dividend reinvestments, cumulative returns are closer to 900%. Comparatively, the TSX index has returned 153% to investors since WSP Global’s initial public offering.
WSP Global’s stellar returns have meant its dividend yield is quite low at 0.63%, given its annual dividend of $1.50 per share. Should you invest in this blue-chip stock for its dividend yield right now?
The bull case for WSP Global stock?
WSP Global delivered organic growth in the second quarter (Q2) of 2024, supported by healthy market conditions in its key regions. In fact, WSP Global increased net sales by 9.1% year over year to $3 billion in the June quarter, primarily due to double-digit organic growth in the Americas.
It ended Q2 with an order backlog of $14.7 billion, representing almost 12 months of revenue, following an order intake of $4.3 billion. WSP Global reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $520 million, up 12.6% year over year. Its adjusted EBITDA margin rose by 50 basis points to 17.4% in the last 12 months due to improved productivity, while adjusted net income stood at $236 million or $1.89 per share, up 21% year over year.
WSP Global reported an operating cash flow of $203 million and a free cash flow of $75 million, indicating it spent almost $130 million in capital expenditures. In the year-ago period, its operating cash flow stood at $85 million, while free cash outflow was $57 million.
WSP’s backlog is healthy due to strong demand for its services. The company is actively developing mega-projects in the infrastructure segment while capitalizing on hyper-growth in verticals such as data centers and healthcare.
Is WSP stock undervalued?
WSP Global has forecast sales between $11.4 billion and $11.8 billion in 2024, with an adjusted EBITDA of $2.12 billion, indicating a margin of 18.3%. Analysts forecast adjusted earnings to expand from $6.9 per share in 2023 to $9.42 per share in 2025.
In the last 12 months, its free cash flow totalled $965 million, while its interest expense and dividend payout stood at $272 million and $187 million, respectively. Though its dividend-payout ratio is less than 20%, WSP Global has never raised its dividend to date.
Priced at 25 times forward earnings, WSP Global trades at a reasonable valuation. Analysts remain bullish and expect the TSX dividend stock to gain 10% in the next 12 months.
The Foolish takeaway
WSP Global remains a solid investment choice for long-term investors. However, investing in this top TSX stock makes little sense for its dividend, given that its payout is quite low and has not changed in the past decade.
